Egan-Jones Hit By SEC Sanctions

By Michael Aneiro

Egan-Jones Ratings Co. today got hit with sanctions by the SEC, which found the perennial underdog rating agency overstated its expertise in certain credit-rating areas when it filed registration forms in 2008.

The SEC barred Egan-Jones and its founder, Sean Egan, from rating government securities and asset-backed securities for 18 months. The SEC said Egan had claimed experience rating such securities going back to 1995 but that the agency in fact lacked such experience prior to its filing date.

Egan-Jones rose to almost-prominence in the wake of the credit crisis, when old-guard rating agencies Moody’s, Standard & Poor’s and Fitch were widely blamed for misleading investors by blindly slapping triple-A credit ratings on anything within arm’s reach, notably subprime mortgage-backed securities that ultimately defaulted after the housing bubble burst. Egan-Jones has sought to distinguish itself with an investor-pay model, whereby investors paid the agency for its ratings, rather than the issuer-pay model embraced by the big three rating agencies, which Egan and other said was fraught with conflicts of interest.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.